QinetiQ Group plc Ord GBP 0.01 (QQ.)

Company overview

Qinetiq operates in the arenas of defence technology and security systems. Products both manufactured and supplied include unmanned aerial vehicles, missiles, robotic systems and advanced security systems for computers. The group also provides support services to government organisations such as the MOD and the US Department of Defence.

HL Comment (28 May 2008)

Defence group QinetiQ came to the stockmarket back in February 2006, over twenty years on from the initial government privatizations back in the early 1980s. The UK government still retains a 20pc stake in the group. Employing around 14,000 people, the group’s high tech ‘James Bond’ style weaponry and systems include a whole host of products from unmanned surveillance aircraft to bomb disposal robotic systems and sophisticated sensors for a wide range of modern day weapons. Before coming to the stockmarket, QinetiQ Group had commenced a move into the USA via a series of US company based acquisitions, with the aim of not only growing its exposure to the world’s biggest defence customer, the US government, but also reducing its dependence on what remains its biggest customer, the UK government.

The group’s recent full year results (28May08) saw underlying operating profits increase by 20pc to £127m, whilst turnover rose by 19pc to £1.36 billion – towards the upper end of analysts’ expectations. Trading in the group’s growing US business remains strong and a reorganisation within the European, Middle Eastern and Australian (EMEA) division continues to bear fruit. The group’s push into the Australian market has continued with three small acquisitions made and the overall order book remains solid with good earnings visibility highlighted by management. Management confidence in the outlook was expressed via a 16pc increase in the full year dividend.

Acting for negative investor concerns is the volatility and uncertainty which bidding for defence contracts can bring. Furthermore, with the UK government still retaining a 20pc stake in the group, worries over potential conflicts of interest are also apparent. In addition, finances for both the UK and US governments remain under the spotlight, with public appetite for overseas operations in the Middle East appearing to be in decline. On the positive, the growing threat of terrorism has seen governments globally increasing their defence spending on ever more sophisticated defence systems. In addition, costs are being cut via a restructuring plan and the group’s geographical reach and diversification continues to be expanded. On balance, a limited market consensus opinion is currently favourable in tone.

All yield figures are variable and not guaranteed.

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